Real estate is But w
In easier times, construction financing was generally a routine matter of paperwork.
But in the COVID age, lenders often are laser-focused on details that previously were rarely even discussed.
Construction workers at the construction site off South Dixie Highway and SW 37th Avenue in Coral Gables on March 31. South Florida’s real estate development and construction industries employ about 140,000 workers.
That was the experience of Nelson Stabile, a principal with the Miami-based private equity and development firm Integra Investments, who found himself reviewing construction cost analysis and insurance programs with lenders — even conducting virtual tours — to them to finance $ 70.3 million in construction loans for two projects in July and August.
“We had one lender who is keen on physically walking the neighborhoods. We had to basically do everything virtually,” Stabile said.
The entire process added a month to the overall development timeline. “Still,” said Stabile, “we were fortunate to secure financing amid the pandemic.”
Other local developers weren’t as lucky. As the pandemic swept the nation, South Florida lenders slowed or halted construction financing, further staunching a
development wave that had already begun to ebb. COVID’s impact on brick-and-mortar retail and hospitality brought a full stop to plans for many new shopping centers and hotels; the shift to remote working left banks and other firms wary of new office projects.
But as October and November have rolled around, lenders have warmed to warehouse and residential projects — provided the developer has a strong track record and a penchant for detail.
That’s good news for South Florida’s real estate development and construction industries, which employ about 140,000 workers.
“Every construction project is a potential economic engine for the community,” said Steve Cohen, senior director of commercial real estate for Synovus, a Columbus, GA-based bank backing South Florida projects. “It creates jobs for architects, engineers, contractors, building supply firms. It creates construction jobs that can last two years or beyond. It provides real estate tax to the community.”
Synovus is one of a handful of commercial banks still lending for South Florida projects; others include Wells Fargo, Bank of America, BB&T, Bank OZK and Canadian Imperial Bank of Commerce. Private equity firms including Blackstone and Goldman Sachs, family offices and private investors also provide lending for local deals.
One thing all have in common: Stringent requirements. Bank stress tests implemented after the Great Recession have made lenders acutely aware of the need to manage risks.
“Deals have to be fully buttoned up,” said Andrew Kurnit, executive director of DWNTWN Realty Advisors. “There is no appetite for risk. The stars have to perfectly align these days for a project to be financed.”
Only seasoned developers are making the cut, said Eddy Arriola, chairman and CEO of Apollo Bank. These days, he only looks at projects from developers with more than five years of experience.
“We want multiple successful projects,” Arriola said. “As a lender, we want to see how have they responded to a lawsuit, partner issue, managing multiple subcontractors? How do they manage three or four projects at a time? How have they handled hurricane season? There are so many factors that can come up and it’s important to see how they handle market forces.”
Patrick Ramge, Wells Fargo Florida’s senior vice president for commercial real estate, calls it “cycle tested.” Ramge wants to see that “they’ve been through one or five market cycles to show that they have behavioral performance, or acted accordingly to whatever obligations that they had on financing circumstances. It comes down to making sure that we understand our clients very well.”
A successful track record shows banks that borrowers have their priorities straight, Cohen said.
“We’re in the business to rent money, not to give money away,” Cohen said. “Those borrowers that come with a lot of experience know how to anticipate the risks
Above: A view of downtown Miami. “Florida is an attractive place for investors from New York and Chicago, because the population keeps on growing,” said Alirio Torrealba of MG Development.
that are inherent in development. If they know the risks, they know how to protect themselves as the investor and therefore they protect us as the lender.”
As a result, big firms generally have an edge, said Dan Kodsi, CEO of the Paramount Miami developer Royal Palm Companies. “This is where reputation and execution matters.”